Pittsburgh caught in the middle
Reversing pipeline’s direction could affect gas prices here
The owner of the only pipeline bringing gasoline and diesel from the East Coast to southwestern Pennsylvania is planning to reverse the direction of flow 100 miles east of Pittsburgh so that Midwestern refiners can send more fuel to the middle of the state.
The proposal by Laurel Pipe Line Co. to reverse flow west of Altoona is pitting Philadelphia-area refiners, who fear they will be excluded from the Pittsburgh market, against Midwestern refiners eager to ship North American petroleum products to customers in central Pennsylvania and points east.
In the middle: southwestern Pennsylvania fuel consumers who have benefited from sitting at the nexus of competing pipelines originating from the east and west. They will become much more reliant on Midwestern fuel sources if the reversal is approved.
Buckeye Partners, the parent of Laurel Pipe Line, says it is responding to shifting market forces. It argues that central and Western Pennsylvania consumers will receive greater access to generally lower-priced petroleum products from a diverse, reliable refining region.
“The ability to access this lower-cost refined product that is coming from the expanding Midwest refining center is going to be a good thing for the customers of Western Pennsylvania in the long run,” Bill Hollis, senior vice president at Buckeye, said. Not everyone sees it that way. The application to the Pennsylvania Public Utility Commission has drawn formal protests from fuel retailers with a major presence in Western Pennsylvania, including O’Hara-based Giant Eagle, Altoona-based Sheetz and Sunoco, who all say the switch would ultimately cause consumers to pay more for gasoline.
Giant Eagle, with its GetGo fuel and convenience stores, is “firmly opposed” to the reversal, in part because it would diminish its ability to choose among competitive fuel sources “likely leading to higher prices at our — and other — Pennsylvania fuel pumps,” spokesman Dick Roberts said.
“The reversal would benefit out-of-state refineries in the Midwest and the pipeline owner at the expense of Pennsylvania residents and businesses.”
Other protests have been filed by East Coast refiners and fuel suppliers Philadelphia Energy Solutions, Monroe Energy and Gulf Operating, as well as the PUC’s Bureau of Investigation and Enforcement.
More than 40 state legislators from all parties and regions have submitted variations on a form letter expressing concern the reversal will hurt fuel prices and reliability, increase truck trips, and cost jobs tied to the Philadelphiaarea refineries.
Supporters of the proposal include operators of several major Midwestern refineries — among
them Marathon Petroleum Co. and BP — and heating oil dealers and liquid fuels retailers in southeastern and central Pennsylvania, who say they will benefit from more reliable supply and competitive prices.
The PUC has scheduled two hearings to gather public feedback on the application at 1 and 6 p.m.May 16 at its headquarters in Harrisburg. Participants who want to offer comments by telephone must notify the PUC’s Office of Administrative Law Judge at 717-787-1399 by Monday.
So many barrels of petroleum products
In its application, Laurel said the reversal will not involve any new pipeline construction and will require limited facility upgrades on the 60-year-old system that stretches about 350 miles from Eagle Point, N.J., to Midland, Beaver County, with 14 delivery points along the way.
Last year, the pipeline transported a total of 84 million barrels of petroleum products, including gasoline, diesel, heating oil and jet fuel.
Other primary sources of fuel to the Pittsburgh market include three pipelines from the Midwest, as well as trucks and barges delivering from refineries or storage terminals in West Virginia, Ohio, northwestern Pennsylvania and other regions.
The reversal is part of a larger Buckeye project to expand capacity on its pipeline from Michigan and Ohio. Although the Laurel pipeline telescopes from east to west from 24 inches in diameter to 18 inches near Pittsburgh, “the piping is plenty big right now” to handle expanded shipments bringing as much as 40,000 more barrels per day of Midwestern refined fuel into central and Western Pennsylvania, Mr. Hollis said.
A main motivation for the reversal is that the Laurel pipeline is being underutilized as shipments from the east decline, he said. “It is becoming less and less common to ship from the east, just for economic reasons.”
Midwestern refineries, which have grown and become more sophisticated to handle the plentiful, lowpriced crude coming from American shales and Canadian oil sands, are looking to expand. The East Coast, with its large population centers and declining refining capacity, is the logical target.
“The refiners in that western hub have a pretty good competitive advantage, a lasting one, over the ones to the east,” said Rob Smith, a director at IHS Markit who analyzes North American refining and fuel retail sectors.
The Midwestern refineries are so much better positioned, he said, that if the pipeline were reversed all the way to the Delaware River — as some refiners have said is their ultimate goal — their break-even cost to supply Philadelphia would still almost be lower than the local refineries.
“It is a stronger refining industry in the market,” he said. “That’s what is the ultimate driving force behind this.”
Uncertainty over consumer impact
But just because Midwestern refiners can produce gasoline more cheaply does not necessarily mean that Pittsburgh consumers would pay less at the pump. The “biggest uncertainty” about the proposed reversal, Mr. Smith said, is “the impact it would have on the price.”
Ending East Coast pipeline service to the region would trigger a shift so that Pittsburgh-area fuel prices would be influenced much more by the Chicago spot market, instead of the one based at New York Harbor, and it remains to be seen how those markets will evolve, he said.
Having access to two markets has given the region some insulation from price spikes and supply disruptions that would be eroded by reliance on a single market, however broad and robust it might be. Which is why the protests by southwestern Pennsylvania fuel retailers, like Giant Eagle and Sheetz, make sense, Mr. Smith said. “This move will absolutely decrease their buying power.”
Critics of the proposal say they have no doubt regional gas prices will go up if the reversal is approved.
“I suppose if you believe in unicorns, you would believe that curtailing the majority of gasoline to the Pittsburgh market would have no impact on prices,” state Rep. John Maher, R-Upper St. Clair, said.
A consultant for Gulf projected the reversal could increase costs for Pittsburgh consumers by up to $68 million annually and could add 45,000 truck trips a year between Pittsburgh and Altoona if retailers want to retain access to East Coast supplies.
In legal documents, attorneys for Laurel said that analysis is “fatally flawed” and the evidence to be introduced in hearings this fall will show consumers will benefit.
One area of concern — that the reversal could contribute to fuel summer shortages when the Pittsburgh region must use a special, lesspolluting gasoline blend — possibly won’t be a factor by the time Buckeye expects fuels to start flowing east on the western portion of the pipeline in the fall of 2018.
State environmental regulators are in the process of repealing the special blend requirement, and they predict the change will be in place by May 1, 2019, the first summer of the proposed reversal.
As for future reversals farther east along the pipeline, Mr. Hollis said the company has discussed the idea.
“If the market tells us that that’s where it goes, and folks are willing to make long-term commitments to do that, then we will come back with another project to look at that,” he said. “Right now, that’s not on the table.”